LONDON – European stock markets fell Wednesday due to concerns about the sustainability of the recent rally amid mixed economic news, while Wall Street recouped most of its early losses to trade largely flat.

In Europe, the FTSE 100 index of leading British shares closed down 50.11 points, or 1.2 percent, at 4,278.46 while Germany’s DAX fell 90.74 points, or 1.9 percent, to 4,799.98. The CAC-40 in France ended down 52.81 points, or 1.6 percent, at 3,161.14.

On Wall Street, the Dow Jones industrial average was down 6.05 points, or 0.1 percent, to 8,498.62 around midday New York time while the broader Standard & Poor’s 500 index fell 2.94 points, or 0.3 percent, to 909.03.

Earlier, the losses in the U.S. had been more substantial after the country’s second biggest shipper of goods FedEx – considered a bellwether of economic activity – warned that it expects “extremely difficult” conditions in the next two quarters and Standard & Poor’s announced it was cutting its ratings on 22 U.S. banks, including BB&T Corp. and PNIC Financial Services Group Inc., because of volatility in the financial industry and tighter regulation.

However, news that consumer prices in the U.S. rose less than expected in May eased market concerns that the U.S. Federal Reserve would be raising interest rates earlier than anticipated – one of the reasons why investor nerves were frayed in the last week or two. Instead of the 0.3 percent monthly increase predicted, inflation rose 0.1 percent.

“Inflation fears that have gripped the bond market continue to be more imaginary than real as the May CPI came in below expectations and the annual decline (1.3 percent) in the headline is the largest in about 60 years,” said Steven Ricchiuto, chief economist at Mizuho Securities.

Stocks in Europe had been down all day amid worries that the rally that started in March may have been overdone. With some indexes up more than 50 percent since then on expectations of an economic turnaround this year, markets reacted negatively to some weaker than anticipated economic data.

In particular, the rally since March had been fueled by hopes that the U.S. economy will recover from recession sooner than anticipated. As equities usually start rising 6 to 9 months before actual recovery emerges in the official data, this suggests investors believed the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world’s major equity indexes are now in positive territory for 2009.

That optimism has dissipated in recent days, however. Rising interest rates on U.S. government bonds and higher oil prices have combined to worry investors that any recovery around the world could be choked off at birth.

“Further falls in stock markets is suggestive of more risk being taken off the table today as the market worries about the strength of the `green shoots’ of recovery,” said Jane Foley, research director at Forex.com.

Investors, it seems, are awaiting signs that the recent months’ rally wasn’t just misplaced euphoria.

Analysts say markets need clearer evidence that the world economy and company earnings are recovering so that current stock valuations make sense. In March, many investors saw valuations around the world as particularly cheap and started buying into the market.

Neil Mackinnon, chief economist at ECU Group, noted that the S&P 500 in the U.S. is “not cheap” at the moment at 16 times earnings and that the 925 level “is starting to falter.”

Shanghai’s stock measure recovered the session’s losses to close higher by 1.2 percent, as investors found encouragement in comments from President Hu Jintao. Hu said Tuesday that Beijing’s stimulus is showing results and China is determined to take the lead in emerging from the global economic crisis.

Investors were wary after the Chinese government last week reported conflicting data showing exports falling but consumer spending and investment rising.

Oil prices were slightly softer, with benchmark crude for July delivery down 74 cents to $69.73.

In currencies, the dollar was down 0.6 percent at 95.85 yen while the euro rose 0.4 percent to $1.3862.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.